Here's Why Blue Dart Express (NSE:BLUEDART) Can Manage Its Debt Responsibly

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' It's only natural to consider a company's balance sheet when you examine how risky it is, since debt is often involved when a business collapses. Importantly, Blue Dart Express Limited (NSE:BLUEDART) does carry debt. But the more important question is: how much risk is that debt creating?

When Is Debt Dangerous?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. While that is not too common, we often do see indebted companies permanently diluting shareholders because lenders force them to raise capital at a distressed price. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. The first step when considering a company's debt levels is to consider its cash and debt together.

View our latest analysis for Blue Dart Express

What Is Blue Dart Express's Net Debt?

The chart below, which you can click on for greater detail, shows that Blue Dart Express had ₹2.50b in debt in September 2024; about the same as the year before. But on the other hand it also has ₹4.52b in cash, leading to a ₹2.02b net cash position.

How Healthy Is Blue Dart Express' Balance Sheet?

According to the last reported balance sheet, Blue Dart Express had liabilities of ₹15.3b due within 12 months, and liabilities of ₹6.28b due beyond 12 months. Offsetting these obligations, it had cash of ₹4.52b as well as receivables valued at ₹7.75b due within 12 months. So its liabilities total ₹9.34b more than the combination of its cash and short-term receivables.

Given Blue Dart Express has a market capitalization of ₹168.0b, it's hard to believe these liabilities pose much threat. Having said that, it's clear that we should continue to monitor its balance sheet, lest it change for the worse. Despite its noteworthy liabilities, Blue Dart Express boasts net cash, so it's fair to say it does not have a heavy debt load!

On the other hand, Blue Dart Express's EBIT dived 13%, over the last year. If that rate of decline in earnings continues, the company could find itself in a tight spot. The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately the future profitability of the business will decide if Blue Dart Express can strengthen its balance sheet over time. So if you're focused on the future you can check out this free report showing analyst profit forecasts.

Finally, a business needs free cash flow to pay off debt; accounting profits just don't cut it. While Blue Dart Express has net cash on its balance sheet, it's still worth taking a look at its ability to convert earnings before interest and tax (EBIT) to free cash flow, to help us understand how quickly it is building (or eroding) that cash balance. Over the most recent three years, Blue Dart Express recorded free cash flow worth 80% of its EBIT, which is around normal, given free cash flow excludes interest and tax. This free cash flow puts the company in a good position to pay down debt, when appropriate.

Summing Up

While it is always sensible to look at a company's total liabilities, it is very reassuring that Blue Dart Express has ₹2.02b in net cash. The cherry on top was that in converted 80% of that EBIT to free cash flow, bringing in ₹5.7b. So we are not troubled with Blue Dart Express's debt use. There's no doubt that we learn most about debt from the balance sheet. However, not all investment risk resides within the balance sheet - far from it. For example - Blue Dart Express has 1 warning sign we think you should be aware of.

Of course, if you're the type of investor who prefers buying stocks without the burden of debt, then don't hesitate to discover our exclusive list of net cash growth stocks, today.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.